217 companies with a turnover of more than 10 million euros filed for bankruptcy in 2022. As expected, the number has risen sharply, but despite all the crises there has been no wave of insolvencies. Experts see this with mixed feelings.
Galeria Karstadt Kaufhof has gone bankrupt twice in the past three years, but business is still going on at 131 locations. It will only be decided in the spring what will happen to the branches. Up to 90 are said to be on the verge of going out, but the group could then continue after bankruptcy. A company bankruptcy is rarely so visible in Germany, especially of this magnitude. Accordingly, Galeria Karstadt Kaufhof leads the ranking of major insolvencies in Germany last year, ahead of the automotive supplier Borges, MV Weften and the dental dealer Pluradent.
According to the management consultancy Falkensteg, 217 large companies filed for bankruptcy last year. Any company with a turnover of at least 10 million euros is considered a large company. 217 such insolvencies are 65 more than in the previous year, an increase of 42 percent. The total turnover of the insolvent companies rose from 7.7 to 11.6 billion euros, i.e. by around 50 percent.
Jonas Eckhardt von Falkensteg sees this with mixed feelings. “It’s a slight upward trend, but we don’t see a wave of bankruptcies,” he says. The comparison with 2021 is indeed a bit laggy. Due to state corona aid and the suspension of the obligation to file for insolvency, there were fewer insolvencies this year than ever before. With the current increase, the German economy is getting closer to the normal state it was in before the pandemic. Even away from large companies, no wave of bankruptcies can be identified. By the end of September, district courts had registered 10,643 bankruptcy applications. That was even 0.4 percent less than in the same period of the previous year.
But: These only slowly increasing insolvency figures are not only a good sign. “They distort the real picture of the economy,” says Eckhardt. His thesis, which other economists also support, is that many more companies in Germany are suffering than the insolvency statistics indicate. This is indicated, for example, by another statistic: the total of loan defaults increased to 700 million euros in 2022. Management consultancy EY expects the proportion of bad loans in Germany to rise from 1.2 to 2.3 percent in 2023.
The fact that many companies are doing badly is not surprising after two years of the corona pandemic, three years of high raw material prices and collapsed supply chains, three years of no-Covid policy in China with various delivery failures and now a year of what was in some cases an extreme energy crisis. But government aid measures and the changes in insolvency law in recent years are keeping many companies alive. Anyone who wants to express that disrespectfully speaks of “zombie companies”.
Eckhardt put it more pragmatically: “Insolvencies are important for business life. Products and employees are wasted in unprofitable companies, while many profitable companies are desperately looking for them in order to generate sustainable profits with them.” But he also sees a rethinking in the economy. Insolvency applications are often filed earlier today. That’s smart, because Germany has one of the best insolvency and restructuring systems in the world. If this is used early enough, the core of the company can usually be preserved.
This is the only reason why it is possible that Galeria Karstadt Kaufhof was able to file for insolvency twice in 2020 and 2022 and that both procedures will probably still survive as a company – even if only with 40 of the original 172 department stores and several thousand fewer employees. Even of those branches that will be discontinued, some could be sold to other investors who will then open them under a new name.
In 2023, economists agree, the number of insolvencies is likely to continue to rise. After all, energy prices are still high, and the delivery difficulties, especially from China, will not be overcome until summer at the earliest. Rising key interest rates are making financing by credit more and more expensive and therefore more difficult. This is doubly depressing, because after the crisis years many companies have exhausted their financial reserves. According to Eckhardt, some sectors are also in a permanent crisis. This includes the construction industry, retail and automotive suppliers. The real estate industry and the healthcare sector are likely to be hit again in 2023. Nevertheless, there should not be a wave of insolvencies, but rather a steady increase.
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